Madsen Pirie

 It is reported that Chancellor George Osborne raised an extra £1.3bn in the first month since the top rate was lowered from 50 to 45 percent.  In April he took £11.5bn, a 10 percent increase on last year.  There could be many reasons behind this.  There are more people in work than there were a year ago, and the economy is a little stronger.  As we revise the figures it looks as if the double dip recession never happened.  Some of the increase might be down to income deferred by people who had the option to hold it back until the lower rate clicked in.

When income tax was raised to 50 percent by the last Labour government, reneging on an election pledge not to do so, receipts were only a third of the £3bn they predicted, and the loss to the economy far exceeded the £1bn it raised.  I personally knew several high fliers who had paid tax at 40 percent but took avoidance measures when it rose to 50 percent.  There seems to be a general acceptance of 40 percent.  People grumble, but it is regarded as an endemic discomfort like bad weather or the Guardian newspaper.  When it rises above that level they change their behaviour to escape it.  HM Revenue and Customs predict that lowering the rate from 50 to 45 percent will ‘cost’ them only about £100m.  They are wrong; it will increase revenue.  When more figures are in and the Chancellor sees that, he might be emboldened to drop the top rate to the 40 percent he should have gone for the first time.  And after that he should be brave enough to go for the one thing that we all know will bring both growth and extra revenue.  He should go for a flat tax, and a low one at that, and clear out most of the 12,000 pages of exemptions, deductions and conditions that currently describe the tax code.

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